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April 18, 2013

Two recent Georgia Court of Appeals en banc decisions issued on March 29 have weighed in on one aspect of the MERS fallout, holding in favor of the secured lender.

In Montgomery v. Bank of America et al., No. A12A0514, 2013 WL 1277830 (Ga. App. March 29, 2013) and LaRosa v. Bank of America, N.A., et al., No. A12A2393, 2013 WL 1286692 (Ga. App. March 29, 2013), the Court of Appeals was asked whether a security deed which includes a non-judicial power of sale is transferable without evidence of the transfer of the underlying debt instrument. Montgomery at *2; LaRosa at *1. Without discussing the myriad legal issues on both sides of this debate, the Court of Appeals upheld the trial court’s ruling in favor of the mortgagee, citing the lack of statutory authority or case law supporting the mortgagor’s theory that the note and deed must “travel together” for an assignment of the foreclosure remedy to be valid. Montgomery at *2; LaRosa at *2. See also O.C.G.A. §44-14-64(b).

But secured lenders and their servicers initiating non-judicial power of sale foreclosure in Georgia should not breathe a collective sigh of relief just yet. As the dissents in both decisions point out, the Georgia Supreme Court has yet to issue its ruling in You v. JP Morgan Chase Bank, N.A., No. 1:12-cv-202-JEC-AJB (N.D. Ga. Sept. 7, 2012) where the federal court certified the question of note/mortgage severability, along with two related foreclosure notice questions to the Supreme Court of Georgia, citing the “substantial need of federal courts to obtain enlightenment [from the Georgia Supreme Court] on these questions.” (The district court also certified the questions of whether (i) O.C.G.A. § 44-14-162.2(a) requires a secured creditor to be specifically identified in the foreclosure notice and, if yes, whether (ii) “substantial compliance” with the preceding statute suffices.)

In answering these queries, the Georgia Supreme Court will hopefully add clarity to the practical confines of the foreclosure notice procedures required by the Court of Appeals’ decision last year in Reese v. Provident Funding Associates, LLP, 317 Ga. App. 353 (2012), where the Court of Appeals restricted the ability of mortgage loan servicers to complete foreclosures without first battening down the infamous “who holds the note?” question. (In Reese, the Court of Appeals held that, while a mortgage loan servicer can send the foreclosure notice “on behalf of the secured creditor,” such entity must still identify the secured creditor—read: holder of the note—if the servicer does not have “full authority” to modify the mortgage terms. ) One would think that affirming the Montgomery and LaRosa decisions would add much needed protection to the secured lending process. Reversal of Montgomery and LaRosa, on the other hand, could engender a next generation of delay by those who would argue that modern servicing structures run afoul of the stricter requirements of Georgia foreclosure. Either way, for now, the doors have opened for foreclosures to proceed a little less discriminately.

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